Automated underwriting has been seen for years as the master key to profits in the mortgage business. It has also generated more than its share of controversy. But it has always been discussed in the future tense.
No more. Freddie Mac has finished testing its high-tech system and says it can now be used commercially. The nine lenders who helped test the system are continuing to use it, and the list is expected to grow quickly.
The system, called Loan Prospector, evaluates a borrower's credit and assesses collateral within 72 hours, enabling Freddie Mac to evaluate a loan for purchase even before it is closed, according to an announcement.
"Users of the prototype reported significant improvements in customer service and reductions in processing time," the announcement said.
Touching on a sensitive point, David W. Glenn, president of Freddie Mac, said: "Loan Prospector represents a major step in Freddie Mac's strategic vision to empower rather than compete with customers, to reengineer rather than merely automate business processes, and to focus only on areas of the distribution chain where we bring unique value."
Presently, Loan Prospector links Freddie and lenders with credit reporting companies, mortgage insurers, and certain data services. A capability to evaluate properties is being added. Access to the network is provided by a dozen companies that offer loan origination software.
Some industry executives have been critical of the development of underwriting programs by Freddie Mac, formally the Federal Home Loan Mortgage Corp., because they regard it as a way for the agency, along with the Federal National Mortgage Association, to capture business that ordinarily would have flowed through mortgage banks.
Most vocal among the critics has been Angelo Mozilo, vice chairman of Countrywide Credit Industries, Pasadena, Calif.
Comments from users, meanwhile, have been enthusiastic.
"We see the service providing customer benefits and processing advantages when combined with Citibank's own systems and products," said Carl Levinson, chairman of Citicorp Mortgage, St. Louis. The efficiencies provided, he said, would ultimately lead to lower costs for borrowers and greater flexibility in products offered.
Freddie Mac is clearly trumpeting its accomplishment in developing Loan Prospector. In its announcement, it called the system one of a long list of its "exceptional" innovations, which include creating the conventional mortgage-backed security, guaranteeing swap programs, and offering the first CMO.
And it quoted in its announcement at least one user whose enthusiasm matches theirs: "Loan Prospector has the potential to be the greatest innovation the mortgage industry has seen since the introduction of the mortgage-backed security by Freddie Mac," said James Taylor, executive vice president of Midland Financial Mortgages Inc., Des Moines.
Property evaluation will be available over the Freddie Mac system soon. Three appraisal services and a statistical service have signed up as providers.
The Freddie announcement said the service would reduce the property evaluation process to two weeks, with initial feedback within minutes and decisions about the adequacy of collateral in 72 hours.
Freddie says this module will be optional. Lenders who do not use it can continue to get appraisals from their usual vendors.
The mortgage insurance feature is also optional. Lenders who use the network can register for insurance with the provider of their choice, Freddie Mac said.
Lenders presently using Loan Prospector are Citicorp Mortgage; First Security Savings Bank, Bloomfield Hills, Mich.; Midland Financial Mortgages; and Mission Hills Mortgage Bankers, Santa Ana, Calif.
Also, Monument Mortgage Inc., Walnut Creek, Calif.; Mortgage America Inc., Birmingham, Ala.; Old Kent Mortgage Co., Grand Rapids, Mich.; PHH US Mortgage Corp., Mount Laurel, N.J.; and Standard Federal Bank, Troy, Mich.
